IRA withdrawal while living abroad

Forum|Forum|3 months ago
April 8, 2026
1 reply
66 views

Hello,
I am dual citizen of US and my current foreign country of residence. The money I withdraw from my US based IRA or 401K is considered US source income from US point of view, even if I currently live abroad correct? So i cannot deduct any tax I pay to the foreign country for this, from my US tax yes (such as by form 1116)?

The foreign country I am at, is saying they have the right to tax this, but even if they do they need to allow what I paid to the US to be deducted from what I owe to them right? Otherwise it will be double taxation for me, since US is already considering it is US source (I couldn't even use Form 1116 to deduct what i pay here from US tax) or may be I CAN deduct it from US by using another US form (consdiering international stuff treaties etc)?

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DaveF1006

Level 15

You are correct: Generally, the IRS considers distributions from a US-based 401(k) or IRA to be US-source income. As a result, the foreign country is the one to issue you a tax credit depending on their tax laws.

One saving clause is if the US has a tax treaty with your country of residence, it almost certainly contains a "Relief from Double Taxation" article.

How it works: Many treaties allow you to treat US-source income as foreign-source income for the specific purpose of claiming the Foreign Tax Credit.
The Form: On Form 1116, you select the category "Certain income re-sourced by treaty."
The Result: By "re-sourcing" the income, the IRS allows you to take the credit for the taxes you paid to your host country against the US tax you owe on that same distribution.

Your host country’s claim that they have the right to tax you is usually correct based on residency. Most tax treaties follow these general principles:

Pensions: Are often taxable only (or primarily) in the country where the recipient resides.
The "Saving Clause": The US always reserves the right to tax its citizens as if the treaty didn't exist. This is why you still owe the US.
However, if the treaty says the income is taxable in your country of residence, and the US also taxes you because of your citizenship, the US (not the host country) is usually the one required to provide the relief via the "re-sourcing" method mentioned above.

In retrospect, you may be able to file a Foreign Tax Credit on Form 1116 but depends on the tax treaty the US has with the country you reside in.

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abtb00Author

Level 4

so you mean i can claim the tax i paid in Turkey from US although it is US sourced income? But i think form 1116 doesnt work for this

and my us tax were very low or even zero since i was below standard deduction. so if i claim turkish tax paid then waht? i get money from irs or since i paid nothing then nothing?

AmyC

Level 15

@DaveF1006 said the tax treatment depends on the US- Turkey Treaty.

If the Treaty determines it is not US income, then it is foreign income and resourced by the treaty as Dave explains. Claim on Form 1116 is possible.
If the treaty determines it is US income, you pay US tax. Since you reside in Turkey, this is not as likely.

If you have no tax liability, choosing to claim the credit would not be any help since it is nonrefundable. All worldwide income must be reported on the US tax return.

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